City Interview: Willie Walsh

Willie Walsh might be thought to have little reason to be cheerful, having just endured a pay cut after failing to hit his bonus targets. But not a bit of it.

When I arrive at the company's Waterside headquarters on the fringes of Heathrow to interview the cherubic BA boss, he is in an ebullient mood.

This year, through careful negotiation, Walsh, 46, has dealt with several of the major problems that have dogged the flag carrier since he took over the joystick 20 months ago.

Most importantly he has managed to reach accords with the BA unions over two thorny issues - pensions and the future operations at the new Terminal 5 (T5).

They were tasks which at times looked impossible. The huge pension deficit of £2.1bn has hovered over BA like the Sword of Damocles preventing the airline from investing in a new fleet, or restoring a dividend to shareholders. Now that has changed.

'Sorting out the pension deficit was a master challenge. We reached a fair settlement and that removed a major impediment to the growth of the business. I am delighted,' says Walsh.

Running an airline is never easy, as Walsh's popular predecessor Sir Rod Eddington found with the successive crises of 9/11 and SARS, which remade the global order in the skies.

Walsh may not have had to cope with total meltdown but he has had more than his fair share of difficulties. A security alert at London's main airports last August led to utter chaos for travellers as lost baggage piled up for months, damaging BA's carefully nurtured image as a premium carrier.

As if that were not bad enough, the nightmare repeated itself at the autumn half term, when fog enveloped Heath-row. Passengers and their families were left stranded in a bitterly cold tent city with little guidance about what to do.

Walsh is hopeful that all this will change next year with the opening of Spanish-owned BAA's T5, in which BA will be the main tenant.

The fear was that deeply entrenched BA unions, unreformed from the days when BOAC and British European Airways merged decades ago, would resist the new working practices required for T5.

But Walsh's background as a union organiser at Aer Lingus in his 20s stood him in good stead and the last hold-outs - check-in staff at the passenger terminals - have just come aboard.

'Getting everyone signed up to the work practice changes almost a year in advance of moving in there, I think is a great achievement,' he says. 'It really is a win-win all around. The customers are going to win because it is so much better than anything we've had at Heathrow.

'The staff win because we have a much better working environment and BA wins in terms of the efficiency of the business.'

Not only that, Walsh believes certainly over the short-term it will give BA a competitive advantage over its Transatlantic rivals. Terminal 1 was designed for handling six million people and it is handing 14m.

'T5 is built for 30m people and we will have 25m there in the first year. So there's a lot of room. It's a fantastic building.'

Walsh's reading of staff issues is not always so good. Loyalty to the carrier was severely tested in some quarters when the airline picked a fight with a Christian member of staff, who wanted to wear a crucifix at a time when the country was already bitterly divided over wearing the hijab in the workplace.

Looking back at the incident now the BA chief recognises that he may have been naive as to how it would play out in the media after he stubbornly refused to back down on what BA describes as its 'uniform policy'.

'I have to accept responsibility for the way it was handled. I misjudged the way it was perceived in the public domain,' he says. Even so, he believes that BA's track record in handling the matter 'was not fairly portrayed'. If anything, the crucifix affair taught Walsh that it is no use ducking contentious issues.

When it came to the far more serious allegations of price fixing, partly exposed by its British rival Virgin Atlantic, Walsh acted decisively, suspending the officials concerned - commercial director Martin George and communications chief Iain Burns.

The company has now taken a whopping £350m provision in its accounts. 'When Martin George resigned, he acknowledged that there may have been inappropriate conversations. I have made it clear BA's policies on competition may have been breached,' he says. Walsh says he would like to clear the decks and hints at a deal with the US Department of Justice.

'The experience in the US is that the authorities operate at a faster pace and there is always the opportunity to settle,' he says.

the bad odour from the affair still lingers, with BA this week taking flak from some big investors for a payout of £1.6m to George, who is seen in some quarters as the official who has cost the airline hundreds of millions of pounds and bogged it down in a legal mire.

Walsh is never more animated than when he speaks about aircraft and speed. He began his life in airlines as a trainee pilot at Aer Lingus at the tender age of 17, when most of us are gingerly climbing into our first cars.

'I enjoyed flying but I was always looking for something to challenge me a bit more,' Walsh says. As a result, he stopped flying commercial airlines in 1997 to concentrate on management, turning around a near-bankrupt Aer Lingus - widely considered his greatest achievement.

Now that the BA pensions crisis is resolved and the company's debt overhang has been cut to £991m - the lowest level since 1990 - Walsh can focus at last on fleet renewal, something which is becoming ever more important at a time when the industry finds itself under fire from environmental activists.

So far, the group has announced that it will be buying four Boeing 777s with Rolls-Royce engines and has taken an option to acquire another four.

Further than that, it is looking at its needs for 2014 and beyond - particularly given the need to improve the environmental performance of the fleet.

He notes that if BA were to replace 14 long-haul 767s with more modern aircraft, it could achieve a 30pc jump in fuel efficiency, 'so these are significant figures'.

He believes, however, that the single biggest saving on emissions across the industry could come from creating a single air traffic control system over Europe.

'This is something that has been talked off since I was a boy. It could reduce fuel burn by 12%. These are massive figures,' Walsh asserts.

But he makes it clear that he believes that simply targeting the airlines is naive. He points to the climate change report by Nicholas Stern, which shows carriers are only responsible for 1.6% of total emissions, a figure which would rise to 5% by 2050 if nothing happened in the interim.

Walsh has one pledge up his sleeve which will please BA's shareholders. The board is intending to restart dividend payments this year, starting in small way and 'recognising we're a cyclical industry'.